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Breakingviews: Second-class citizens

Tronchetti Provera: no incentive to
convert savings shares to voting shares

Source: www.breakingviews.com is Europe's leading financial commentary service

Date: June 2003

By Rob Cox

For all the talk about equality, European capital markets are still crowded with aggrieved second-class citizens. These are the shareholders of such securities as German preference and Italian savings shares that appear to have little or no say in the governance of the companies they invest in and few protections against mistreatment.

Many family-controlled companies issued these shares years ago to enable their owners to raise capital without relinquishing power. As a general rule, the securities offered a slightly higher dividend payout to compensate for the absence of voting rights, though there are variations among the classes. Some Italian preference shares, for example, carry a right to vote at extraordinary general meetings, but not at annual meetings.

Traditionally, the capital markets accorded differing valuations to savings and preference shares even though they had the same economic claim to the companies' future earnings streams as common shares. Italian savings shares usually traded at big discounts to ordinaries.

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